Wednesday, 16 July 2014

Saving Money: Tips everyone in their 20s should know by Financial Tips Corliss Group Online Magazine

Financial advisers stress that there are several money
lessons everyone in their 20s should know. For example, start saving at least
10 percent of your monthly income.

James Madison University graduate Nandi Alexander, 22, from Washington D.C., celebrates after the Conferring of Degrees at the College of Arts and Letters ceremony during the spring commencement, May 4, 2013, in Harrisonburg, Va. Financial advisers stress that there are several money lessons everyone in their 20s should know, such as saving at least 10 percent of your monthly income.

Changing your financial
state requires a kind of time travel to commune with your future self.
Where do you want to be in 10, 20 years? Are you on the right path, or heading
in the wrong direction?

The time value of
money—that is, how savings, investments and debt levels compound with the
passing of years—means that money habits, good or bad, created when we start to
earn cash echo into the decades that follow. And a whispered bit of wisdom up
front can keep you from howling over your mistakes later in life.

We polled our NerdWallet network of Ask an Advisor certified
financial planners about the greatest regrets and lessons you should learn in
your 20s, 30s and 40s. Taken together, these could be considered 12 steps
toward securing your financial future. And they all hinge on two keys skills we
must learn—and often relearn—in our money lives: prepare and stick to a budget,
and establish good savings habits.

We’ll address the 30s and 40s later this week, but first:
your 20s.

“Understand that the world has changed. You will be more
responsible for your financial
future in regard to earning a living, retirement planning, funding and
investing, health insurance coverage and costs and less coverage through
government programs,” says Jerome Deutsch, managing director of U.S.
Institutional Markets for Index Strategy Advisors in Decatur, Georgia.

“Learn, plan and live mindfully and with a long-term
perspective. It may not sound like fun, but you have a long life ahead of you.”

Pay yourself first

Save at least 10 percent of your monthly income. “The earlier
you start this, the easier it becomes,” says Michael Keeler, president of GFS
& Association in Las Vegas. “If you can learn to live without 10 percent of
your income, you’ll do great in retirement.”

Use the savings to set aside the equivalent of six months’ gross income. “This
money shouldn’t be subject to market whims and shouldn’t have the goal of
making a lot of interest,” says Larry R. Frank Sr. of Better Financial Education.
“The objective is to develop the war chest for unexpected expenses and to
develop the habit of keeping your standard of living within your means”—to
spend less than you earn.

After you’ve built your emergency fund, focus on paying down
debts or begin to invest.

“Student loan debt comes next,” says Sara I. Seasholtz,
president of Preferred Financial Strategies in Mooresville, North Carolina.
“Then they should participate in the 401(k) where they work and contribute
whatever is necessary to get the match from their employer. This figure seems
to be 6 percent in most cases.”

Don’t go crazy with
credit

Live within your means and resist the new spending power that
comes with having income and a few credit cards. Otherwise you will spend your
30s paying for your 20s—and your future self will hate you for it.

“My number one piece of advice for those in their 20s
is—beware of debt and credit! So many of us have made the mistake of
bankrolling our 20s with credit cards, and spent our 30s digging ourselves
out,” says Carrie Houchins-Witt, owner of Carrie Houchins-Witt Tax and
Financial Services.

“As tempting as going out and buying that new car may be, I
would advise against it. Now is the time to start building up emergency funds
and a strong foundation to invest in assets that appreciate,” says Jeremy S.
Office, principal of Maclendon Wealth Management in Delray Beach, Florida. “The
pleasure of not having debt or paying it down will last much longer than that
new car or luxury item.”

Marriage? Think again

The heart rules, but if the head were in charge you wouldn’t
think of marrying in your 20s. Why? Roughly half of all Americans get divorced
in their lifetime, true, but those who marry before the age of 30 are
especially likely to.

In 2012, 80.6 percent of all American women who had a divorce
and 72.8 percent of all men were below the age of 30 when they married. “I
started family before settling in on long-term career plans [and that] made it
difficult to transition back to career later after 10 years and divorce,” says
Jean Schwarz, managing director of Lumina Financial Consultants in Vienna,
Virginia.

“Experience shows [that] all of us change so much between 20
and 30. Looking back, we wouldn’t recognize or want to be ourselves at 23-to-25
when we are 30,” adds Seasholtz. “To be a good mate and partner one needs to
know themselves well. They need to be established and have some successes in
life.”

Maybe settle for a long engagement.

Know and build your
FICO score

Your FICO score is a measure of your creditworthiness, and is
based on your payment history, credit utilization and length of credit history,
with scores ranging from 300 to 850.

Tracy Becker, president of North Shore Advisory Inc., a
national credit repair company, cites an example when suggesting how to building a strong credit rating in
your 20s: First, have your parents add you as an authorized user to one of
their credit cards. Then open a secured credit card, which usually requires a
cash deposit roughly equivalent to your credit line. Six months later, the
woman in the example had a FICO score of 660.

“The reason her score was this high without much credit is
due to her Mom’s old Visa card being reported. The Visa card aged her average
age of credit substantially, giving her extra points,” Becker says.

This opens the door for future credit lines and securing bank
loans when you want to buy a house. Key, of course, is keeping your balance low
and paying on time.

Ultimately, you are young and you have time to make mistakes
and recover. But you’ll be far better off if you get off to a good start now.

“I never considered the impact that waiting to build savings
and investments would have on my long-term financial security,” Schwarz says.
“I didn’t think about time value of money until my mid-30s.”